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JENNIFER BROWN/THE STAR-LEDGER Claire and Alex Moskvin of West New York sold their home and entrusted the proceeds to a broker at Wachovia, which is now Wells Fargo. They told him to invest conservatively, but he ended up losing nearly $227,000, they say. They have filed a complaint.

Stock market losses were rampant in 2008 and the start of 2009, and very few investors escaped unscathed.

But Claire and Alex Moskvin of West New York contend they never should have seen losses — any losses — in the nest egg they entrusted to a Wells Fargo (formerly Wachovia) broker.

“We were expecting him to keep our money safe for a period of one or two years because we wanted to buy a house,” Claire Moskvin said.

Instead, the account lost $226,865.86 from May 2008 to March 2009.

How it all happened

The Moskvins sold their home in April 2006, and they wanted to invest the proceeds conservatively. They purchased certificates of deposit and principal-insured municipal bonds with their $975,000 in a J.P. Morgan-Chase account, but they weren’t happy with the customer service.

On the recommendation of a friend, they turned to Eric Kleiner, a registered representative, or broker, with Wachovia. (Wachovia was later bought by Wells Fargo, which is Kleiner’s current employer.)

In December 2007, according to a complaint filed by the Moskvins with the Financial Industry Regulatory Authority, they met with Kleiner to discuss a short-term investment strategy for the money.

“During this meeting, they informed him that they were looking to preserve the capital they had acquired through the sale of their house for approximately one to two years, at which point they anticipated purchasing a new home,” said the complaint. "Additionally, Mr. and Mrs. Moskvin expressed their concerns regarding news reports they had heard concerning an impending economic downturn."

The Moskvins, who admit their investment knowledge is limited, said they asked about principal-insured municipal bonds and Treasuries, but Kleiner instead created a portfolio of mutual funds. The Moskvins trusted his recommendations.

Shortly thereafter, the market started to tank, as did the Moskvins’ house fund.

The Moskvins were worried. Very worried. They said they turned to Kleiner.

“He continually reassured us the account was on track, that we were in a perfect investment for the time frame we wanted and not to worry, not to watch it,” Claire Moskvin said.

But the couple did watch the decline, and continued to contact Kleiner — almost daily through July and August 2008, they said. Each time he said not to worry. They asked if they should liquidate the portfolio to stop future losses. He said that would be foolish, according to the complaint.

The Moskvins contacted Kleiner’s branch manager in November 2008, and they were told again not to worry.

In December 2008, they talked to Jackie Ellis, a client resolution specialist for the company. An investigation was initiated, and on March 2, Ellis sided with Kleiner, the complaint said.

Thinking they had no alternative, the Moskvins liquidated their account on March 6, losing $226,865.86.

And they called a lawyer.

The complaint

The Moskvin’s attorney, Stuart Meissner, said Kleiner used a “one-size-fits-all” approach for his clients, disregarding their short-term time horizon while misleading them about commissions and his status as an independent investment adviser.

They also allege something fishy was going on with the account opening documents signed by the Moskvins. On the investment objective page, the box for “growth and income” was checked. The spot for a client signature is on another page, and the Moskvins said they never checked the “growth and income” box, nor do they remember ever discussing the terminology with Kleiner. The couple said their objective was “capital preservation,” something they said they told Kleiner over and over.

“If you look at where the funds came from, all CDs and government-backed securities, they’re conservative any way you slice and dice it,” Meissner said.

Meissner said if the portfolio was invested in a short-term conservative benchmark such as the Barclay’s Aggregate Bond Index, it would have earned more than $29,000 over that time period, rather than lose nearly $227,000.

Arbitration has been scheduled for May. The Moskvins are asking for the return of their lost principal, punitive damages, interest and attorney’s fees.

“We’re devastated and we feel we were misled in our trust that we put in this man,” said Claire Moskvin. "It’s a terrible feeling of betrayal and it’s been extremely stressful. We wouldn’t wish it on anyone."

Complaints are on the rise

Kleiner did not return Bamboozled’s repeated phone calls, and Wells Fargo refused to comment on the case.

According to FINRA, there is one “pending” complaint against Kleiner (the one filed by the Moskvins) and one that’s listed as “final,” in which a client questioned the tax consequences of a stock sale.

Complaints against brokers are on the rise in the wake of the stock market’s 2008-09 fall. There were 50 percent more complaints during the year ending November 2008 compared with the year before (6,601 vs. 4,413), according to FINRA. Last year, the most popular complaints were misrepresentation, unsuitability, negligence and breach of fiduciary duty.

But what about this specific portfolio? Bamboozled took a closer look using the Morningstar.com Portfolio X-Ray tool. We plugged in the investments to check the asset allocation. The breakdown: 16 percent U.S. stocks, 22 percent foreign stocks, 58 percent bonds, 22 percent cash, 2 percent “other” and 12 percent "not classified."

Bamboozled wanted to see what other advisers thought of this portfolio for a couple who needed the money for a short-term home purchase.

“I would have to categorize it between moderate and aggressive,” said Jerry Lynch, a certified financial planner with JFL Consulting in Fairfield. "I would use this with a minimum five-year horizon, but I would prefer longer."

Because most of the investments are “C” shares, there is a 1 percent annual commission built in for the adviser on top of management fees, which increases the overall cost of the funds, Lynch said. For example, on a $500,000 investment, the adviser would receive $5,000 — not once, but each and every year for the life of the investment.

Lynch said for a “capital preservation” objective, he’d stick with a very conservative investment platform, mainly with cash and ultra-short duration high-quality bonds.

A money market or certificate of deposit would be the way to go, said Michael Gibney, a certified financial planner with Highland Financial Advisors in Riverdale.

“If someone has a time frame of less than three years, we advise them to be fairly liquid,” he said.

Protecting yourself

We’ll see what the arbitration panel decides in May. But in the meantime, the Moskvins’ experience can serve as a lesson to all investors.

Never hand over your money completely. If you find an adviser you’re comfortable with — and most advisers are ethical, reputable and well worth the fees they earn — absolutely listen to his or her advice about what investments are best for your goals and time horizon.

Check out an adviser before you hand over your money. Use FINRA BrokerCheck (finra.org) or call (800) 289-9999 to see if there are any complaints about the adviser.

But you have to do more.

Ask about fees. If an adviser recommends a high-commissioned investment, ask why it’s worth the extra fee. If you’re getting something for your money, fine. If you’re not, ask about lower cost and no-load investments, or find another adviser.

If you feel you’re not savvy enough, ask questions until you understand. A reputable adviser should explain, explain and explain again.

Research online. Read books. Go to an investment seminar. And ask more questions. Never stop asking questions.

Shorterm investment timeline? I think the one CFP quoted is a bit Hitlerish by labeling that "Moderate to Aggressive" unless the 58% bonds 22% cash isn't accurate. Of course, I wouldn't consider it cap pres either.

No matter how you slice and dice it, the msot aggressive investment these people should have had would be a short-duration muni fund (or SD govie). Beyond that, CD’s, MMKT, etc. I have had several clients in similar situations (lot of people with large severance packages, inheritances, money to pay for pending education expenses, etc.) where the money is being earmarked for a very near-term purpose. I typically don’t even invest money in the stock market for anything under 5-7 years. Even if the FA was confused about how quickly they needed the money, the worst he should have done was had them in long-term bonds. But equities? That’s just dumb.

Obviously we're only hearing one side of the story, but it's pretty hard to mess something like this up, and you only need to ask the client a few basic questions. "What's the money for? When do you need it?" That should have ended it right there.
Stupid.

They purchased certificates of deposit and principal-insured municipal bonds with their $975,000 in a J.P. Morgan-Chase account, but they weren’t happy with the customer service.

liar

but they weren’t happy with the customer service. (oh palezzz)

During this meeting, they informed him that they were looking to preserve the capital they had acquired through the sale of their house for approximately one to two years, at which point they anticipated purchasing a new home,

liar

They also allege something fishy was going on with the account opening documents signed by the Moskvins. On the investment objective page, the box for “growth and income” was checked. The spot for a client signature is on another page, and the Moskvins said they never checked the “growth and income” box, nor do they remember ever discussing the terminology with Kleiner. The couple said their objective was "capital preservation,"

liar

The Moskvins, who admit their investment knowledge is limited, said they asked about principal-insured municipal bonds and Treasuries

They purchased certificates of deposit and principal-insured municipal bonds with their $975,000 in a J.P. Morgan-Chase account, but they weren’t happy with the customer service.

liar

During this meeting, they informed him that they were looking to preserve the capital they had acquired through the sale of their house for approximately one to two years, at which point they anticipated purchasing a new home,

liar

They also allege something fishy was going on with the account opening documents signed by the Moskvins. On the investment objective page, the box for “growth and income” was checked. The spot for a client signature is on another page, and the Moskvins said they never checked the “growth and income” box, nor do they remember ever discussing the terminology with Kleiner. The couple said their objective was “capital preservation,”

Some allocation breakdowns put certain investments into 2 catergories. Like an income fund may fall under income and G&I.
...maybe.
Yeah this couple sounds like a real turd sandwich. At any point during the asset allocation discussion they could have said:
"no, I don't want mutual funds."
or
"are mutual funds conservative?"
or
"can mutual funds lose money?"
or
" I'm not smart enough to tie my shoes... I want principal guaranteed muni bonds."

That's the first thing that struck me.......That the total added up to more than 100%.
Plus, if they called daily throughout July and August, then I'm sorry but somewhere along the line, some of the investments should have been sold.......Not all of them, but some of them......
If you have a client calling you on a daily basis, you know that:
1- They will continue to call daily as the market heads lower, so you should take some action........just to make them feel like you are taking action.......Becoming more conservative, obviously.....
2- The manager was involved.......speaking to them......hearing their dissapointment and fear......which should have also triggered a round of selling.......getting more conservative......
When I have clients call me because they are scared, I can reassure them that they are invested well, in good funds, etc........BUT, if they call daily for 2 months, then there would have been a pretty big move to short term funds.........Just to minimize the calls.......
This couple might very well be full of sh*t, but they have a case........and ultimately, in this day and age, the FA's career will probably be hurt by it......

N.J"During this meeting, they informed him that they were looking to preserve the capital they had acquired through the sale of their house for approximately one to two years, at which point they anticipated purchasing a new home," said the complaint. “Additionally, Mr. and Mrs. Moskvin expressed their concerns regarding news reports they had heard concerning an impending economic downturn.”